What is Tenure?
Tenure is the period or duration for which the
loan amount is sanctioned. Personal
loans, car loans, education loans have
shorter tenures as compared to home loans. Some banks and financial
institutions extend the loan tenure for an extra fee or a slight increase in
interest rates.
Personal Loan EMI
A personal loan is an accessible
credit facility that many people borrow to fulfill credit requirements. These
expenses could range from necessities to luxuries, and from a wedding or
medical expenses to vacations. However, just like all borrowing, a personal
loan needs to be paid back. A personal loan is paid back through personal loan
EMIs, which are equated monthly installments paid every month to get rid of the
personal loan.
What is a Personal Loan EMI Calculator?
A Personal loan has many benefits associated
with it. However, if not paid back on time, it could become a liability and can
even impact one’s credit score. Therefore, it is better to be pre-planned with
finances to manage the EMIs. This could be done with personal loan EMI
calculators. A personal loan EMI calculator calculates the monthly EMI that needs to be paid on a
particular loan amount based on the interest rate and tenor of the loan.
Personal Loan EMI Calculation using Formula
Apart from an online personal loan calculator,
you can also calculate your monthly EMI with a mathematical formula. The
formula to calculate loan EMI is given below-
P*r* (1+r)^n/([(1+r)^n]-1)
In the above formula, P is the loan amount that you want to borrow
r is the rate of interest per month
n is the tenure of loan repayment in months
Factors affecting Personal loan EMI
Loan amount – This is the amount that a borrower decides to
borrow from the bank in the form of a loan. Higher the personal
loan amount, higher will be the EMI.
Rate of interest – This is the interest charged on the borrowed
loan amount. Lower the personal loan interest rate, lower the EMI.
Loan Tenure – This is the period for which you take a loan.
Longer the personal loan tenure, lower will be the EMI. Longest loan tenure
available across banks in India is 5 years, subject to borrower’s current age
and retirement age.
Benefits of Online Personal Loan Calculator
EMI calculator calculates your loan EMI and has
multiple benefits, which are listed below-
Saves time in doing tedious calculations : EMI calculator helps the borrower to save time in doing tedious calculations by calculating EMI in seconds, as you will get the output the moment you enter the personal loan details.
Gives accurate results : An online Calculator will give you accurate
results, personal-loan-emi-calculator wrong calculations may lead to wrong
results which can change your EMI for a personal loan and make you change your
decision while taking a loan. Therefore, it is always advised to use the online
EMI calculator to get precise results.
Plan your finances : Personal loan calculator tells you about your
EMI which is to be paid during the loan tenure and also lets you know whether
you will be able to pay back the amount or not. Always go an amount that does
not affect your budget, current financial health and your credit score in case
you make defaults in loan payments while paying loan EMIs.
Allows to evaluate multiple schedules : EMI calculator also allows you to view the
amortisation schedules and EMIs for various combinations of loan tenures and
interest rates. Thus allowing you to choose the EMIs that suit your repayment
capabilities.
Personal Loan Interest Calculator – Impact on
EMI
Flat rate method vs Reducing balance method
Your loan EMI will be higher in case of loan
availed of on flat rate while EMI will be lower with reducing rate.
Flat interest rate : Here, the interest rate is calculated on the
actual principal amount for the entire period. So, if you opt for a loan of Rs.
5 lakhs at 12.50% flat rate of interest for a period of 3 years, the EMI to be
paid will be Rs. 19,097. And the total interest per year will be 500,000*
(12.50/100) = 62,500. Thus, total interest in 3 years = 62,500 * 3 = 1.87 Lakh.
This interest along with the principal amount is distributed over the entire
loan tenure to arrive at monthly EMI payments. Here, the impact of repayment of
capital is not considered.
Reducing balance method : In this method, the interest rate is charged
only on the outstanding loan amount. Generally, in this case the interest rate
is higher than the flat rate, but actually, it may turn out to be cheaper as
the interest is paid only on the remaining principal amount. Every month some
part of EMI goes towards the principal amount, thus the interest is charged on
the remaining amount. Hence, there will be a gradual reduction of the principal
amount and as a result the same interest, will be applicable on the lesser
amount. So, if you opt for a personal loan of Rs. 5 lakhs at 12.50% rate of
interest for 3 years, the EMI will be Rs. 16,727.
Amortisation Schedule for Personal Loan
An amortisation schedule is a table of periodic
loan payments that shows the amount of principal and the amount of interest
that comprise each payment until the loan is paid off at the end of its term.
In the Amortisation schedule, your monthly EMI
will be equal, but the component of EMI, which consists of interest payment and
principal payment will not remain the same every month, it keeps on changing.
Illustration : How to read an amortisation
schedule
Suppose if you take a personal loan of Rs. 1
Lakh for 5 years at an interest rate of 10.99%. EMI calculated for this loan
amount is Rs. 2,174 and the total annual EMIs to be paid is Rs. 26,088. The EMI
schedule of loan for 5 years is explained below in the table –
Amortisation Schedule
for a Personal Loan of Rs. 1 lakh over the 5 years
|
Year |
Interest
paid during the year (as a % of annual EMIs) |
Principal
repaid during the year (as % of annual EMIs) |
Cumulative
principal repayment (in %) |
|
2017 |
39% |
61% |
15.9% |
|
2018 |
32% |
68% |
33.6% |
|
2019 |
24% |
76% |
53.3% |
|
2020 |
15% |
85% |
75.4% |
|
2021 |
6% |
94% |
100% |
Each personal loan EMI consists of both amounts
of interest as well as the principal repaid. The interest component of EMI goes
down while the principal component goes up in both cases while doing the
calculation.
In the above illustration, on a personal loan of
Rs. 1 lakh, taken at the lowest interest rate of 10.99%, EMI paid is Rs. 2,174
and an annual total of EMIs is Rs. 26,088, the interest component is around 40%
while the principal component is around 60% in year 1 of loan disbursement. You
repay only 15.9% of the total principal instead of paying 12 EMIs during the
first year.
In year 5, the interest component of EMI is
around 6%, while the principal component is around 94%. Upto year 5, you have
cumulatively repaid 100% of your total loan.
Personal Loan Prepayment Calculator
Part prepayment is the amount that you pay
before the due date of your EMI when you have additional money with yourself.
When you prepay your loan, the bank gives you two options to choose from:
- To
reduce your EMI and keep the loan tenure same
- To keep the EMI same and reduce
your repayment tenure
The choice between the two options depends
totally on you based on your monthly repayment capacity. We have explained the
way EMI or tenure re-adjust after prepayment of personal loan in the
illustration below:
Suppose you take a loan of Rs. 1 Lakh for 5
years at an interest rate of 10.99%. Your EMI of the loan is Rs. 2,174 per
month, and an annual total of EMI is Rs. 26,088. This is how your original loan
schedule looks like till Year 2. On Rs. 1 lakh of loan amount, you pay Rs.
2,174 as monthly EMI (each month) and an annual payment of Rs. 26,088. By the
end of year 2, you have an outstanding principal of Rs. 66,406 and you have to
pay another 36 EMIs to pay down your loan fully. The original schedule of your
loan till year 5, has been shown in the table below:
|
|
Original
Schedule |
|
Loan Amount |
Rs. 1 Lakh |
|
Tenure (in months) |
60 |
|
Interest Rate |
10.99% |
|
Monthly EMI, Rs. |
2,174 |
|
Loan
schedule |
Principal
repaid |
Principal
outstanding |
|
Year 1 |
Rs. 15,879 |
Rs. 84,121 |
|
Year 2 |
Rs. 17,714 |
Rs. 66,406 |
Now at the end of year 2, if you have a surplus
amount of Rs. 20,000, and you decide to prepay the loan. You have two options:
Option 1 : Reduce your loan tenure and keep your
EMI same
Option 2 : Reduce your EMIs and keep the loan tenure unchanged
Option 1 : Reduce your loan tenure and keep your
EMI same
If you have Rs. 20,000 as surplus amount and
decide to keep the EMI same and reduce the tenure, this is what will happen.
At the end of 2 years, when you prepay an amount
of Rs. 20,000, an outstanding principal is reduced to Rs. 46,406 compared to
Rs. 66,406 in your actual amortisation loan schedule. As your loan outstanding
reduces and you opt to reduce your loan tenure, at the end of 2 years you are
left to pay only 24 EMIs as compared to 36 EMIs as planned in your actual loan
schedule. As a result, your total personal loan tenure gets reduced to 48
months instead of 60 months, which was scheduled earlier. In summary, you repay
your complete loan in 12 months less than what you had planned earlier and
continue paying an EMI of Rs. 2,174 every month. Please refer to the table
below to understand the calculation on EMI in case of a loan prepayment under
option 1:
Revised Schedule, after
prepayment of Rs. 20,000 at the end of year 2
Option 1 : Same EMI, shorter tenure
|
Loan Amount |
Rs. 1 Lakh |
|
Tenure (in months) |
48 |
|
Interest Rate |
10.99% |
|
Monthly EMI in Rs. |
2,174 |
|
Early Payment in Rs. |
20,000 in 2nd year |
|
Loan
schedule |
Principal
repaid |
Principal
outstanding |
|
Year 1 |
Rs. 15,879 |
Rs. 84,121 |
|
Year 2 |
Rs. 37,715 |
Rs. 46,406 |
Option – 2 : Reduce your EMI and keep the loan
tenure same
At the end of 2 years, when you prepay an amount
of Rs. 20,000, outstanding principal is reduced to Rs. 46,406 as compared to
Rs. 66,406 in your actual loan schedule. As your loan outstanding reduces and
you opt to reduce loan EMIs, your revised EMI now stands at Rs. 1,519 as
compared to Rs. 2,174 earlier. Your remaining loan tenure remains unchanged at
60 months and you pay an EMI of Rs. 1,519 which is Rs. 655 lower as per your
actual loan amortisation schedule. Please refer to the table below to understand
the calculation on EMI in case of a prepayment under option 2:
Revised Schedule, after
prepayment of Rs. 20,000 at the end of year 2
Option 2 : Same tenure, lower EMI
|
Loan Amount |
Rs. 1 Lakh |
|
Tenure (in months) |
60 |
|
Interest Rate |
10.99% |
|
Early Payment in Rs. |
20,000 in 2nd year |
|
Loan
schedule |
Monthly
EMI |
Principal
repaid |
Principal
outstanding |
|
Year 1 |
Rs. 2,174 |
Rs. 15,879 |
Rs. 84,121 |
|
Year 2 |
Rs. 2,174 |
Rs. 37,715 |
Rs. 46,406 |
|
Year 3 |
Rs. 1,519 |
Rs. 13,810 |
Rs. 32,596 |
Reduction in the number of loan EMIs eases out
your monthly expense burden and helps you maintain your living standard. When
your personal loan EMI reduces, you comparatively pay a lower rate of interest
compared to what you have planned in the original loan schedule. However, you
still pay a higher interest compared to Option 1, in which you decide to reduce
your loan tenure after prepayment.
If you plan to prepay, continuing to pay the
same EMI over a shorter tenure can result in the significantly lower interest
rate on your personal loan and hence, should be the preferred choice whenever
possible.
Process for stopping EMI payments during
Coronavirus Lockdown
The RBI on 22nd May 2020 has extended the
moratorium in repayment of EMIs for next months till August 2020. The earlier
deadline for EMI moratorium was 31st May 2020 which now makes it a total of 6
months of moratorium. This extension means that borrowers may not pay any EMI
for next three months subject to bank approval. After RBI's announcement of moratorium
on 27 March 2020, all banks have announced the option to opt-in or opt-out for
the moratorium option. Under this policy, your EMI will be deferred and the
repayment period will be extended accordingly. Along with it, the interest on
working capital loans has also been deferred due to the impact of the pandemic.
It is important to note that this delay in repayment of Personal Loan EMI's
will not be treated as default and will not have any negative impact on the
borrower's credit score. To know more about the moratorium option, you may
contact your bank’s customer care or its nearest branch.
FAQs on EMI Calculator
Personal Loan
How does a Personal loan
EMI calculator work? Personal loan EMI Calculator uses the combination of loan
amount, loan tenure and interest rate to calculate EMI online. Besides this, it
also tells you how much rate of interest you would pay over your loan period.
Longer the loan tenure, more the amount of interest to be paid for the same
loan amount and interest rate on personal loan.
What is the EMI for personal loan? EMI stands for
Equated Monthly Installment and is the amount that you repay to the lender
against the borrowed amount. EMI for the personal loan includes principal
component and the interest component. You can calculate the EMI using an online
EMI calculator.
What is principal loan amount? Principal amount
is the original amount that you borrow from the lender, not including any
interest amount.
How is principal and interest split in EMI? When
you calculate personal loan EMI through the calculator, each EMI is shown
comprising two components, the principal amount and interest amount. When you
pay an EMI, all the interest is first paid, and the remaining amount is
considered as principal. Every month the interest is calculated on outstanding
amount which is the outstanding principal. Therefore, interest is calculated
first and then the principal component.
Suppose you have taken Rs. 1 Lakh loan for 12 months at 12% rate. The EMI for
the loan will be Rs. 8,885.
Interest component in 1st EMI = (12/12100)1,00,000 = Rs. 1000 Principal
component in 1st EMI = 8885 – 1000 = Rs. 7,885
In next EMI, the interest amount will be calculated on an outstanding principal
of 1,00,000 – 7,885 = Rs. 92,115. The interest component in EMI is higher in
the initial years and reduces over the years. By the end of the tenure, the
interest component will come down to zero and the amount you pay as EMI is the
remaining principal. This is how interest and principal split in personal loan
EMI. When you use the personal loan EMI calculator, it also displays an
amortization table which consists of each EMI and its interest and principal
component.
How much should I pay as monthly EMI? Monthly EMI
depends upon your income and expenses. Generally, banks advise you to limit
your EMI to 35% to 45% of your net income so that you can pay your EMI without
any burden or difficulty. You can calculate your EMI online, which will help
you to know your repayment capacity.
What if I miss EMI payment or there is an ECS
bounce?If you miss your EMI payment or if there is an ECS bounce, then the bank
may charge a penalty. In addition, it will also be reflected in your CIBIL
report and your CIBIL score may get impacted.
What if I get a delay in paying the personal
loan EMI?Banks charges penalty for delaying EMI payment. The amount of penalty
varies from bank to bank.
Why is it necessary to calculate EMI
beforehand? It is important to calculate your EMI in advance to maintain
stability in future payments. When you avail a loan, you promise the bank to
pay a fixed amount at a fixed date every month. So, before availing the loan,
you should consider the stability of your income, monthly expenses, and the
existing loan obligations to avoid any discrepancies in future payments.
Does the loan tenure affect my EMI for personal
loan? Personal loans can be availed for a maximum tenure of 5 years. Tenure
affects your monthly EMI. Longer the tenure of personal loan, lower will be
your EMI.
How to calculate personal loan EMI through
Dialabank? Dialabank EMI calculator calculates the EMIs of different banks as
per the details entered by you. You can easily compare the EMIs and opt for the
best option. You also get to know about the interest charged on the preferred
loan amount.
Apply for HDFC personal loan at Dialabank online and get best offers.
Also Read:- Personal Loan For Entrepreneurs
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